Industry to SEC: We like the idea of kill switches, live test symbols and standards : Automated Trader

SEC listens to the HFT Industry

Synopsis of an article published by Automated Trader 2^nd October 2012

 In the wake of the Knight Capital computerised trading mishap, the SEC called together leading providers of HFT to canvas ideas that might circumvent similar occurrences

Dave Lauer from Better Markets Inc made the observation that there is a tendency for firms to neglect the testing of software, and checking for risk, in favour of achieving more profitable faster speeds, He pointed out that a single server can now send out 100,000 orders per second.  

There is also a tendency to underestimate the complexity of these systems, and the difficulty of making even small adjustments to the programs, not knowing how these changes will interact with other systems in the market place. He advocated more rigorous testing of software under conditions that mimic actual market conditions.

Lou Pastina from NYSE recommended uniform standards for software design, system development, testing and implementation. He also favoured the idea of a kill switch by exchanges when trading exceeded a nominated volume threshold set by the broker-dealer.

Jamil Nazarali, from Citadel noted that the initial problem was software malfunction.  There was a need for prompt recognition, and a planned routine to deal with the subsequent outcomes by halting trading.

ITG’s Sudhanshu Arya advocated live test symbols, and suggested that it would be helpful for agency brokers to have a copy of real-time executions for reconciliation.

Chris Isaacson of BATS Global suggested that the SEC’s role is to require real-time reporting to the DTCC. (Depository Trust and Clearing Corporation)

Categories: Trading opinion

Tags: High frequency trading